ST. PETERSBURG — Florida insurance regulators have long had suspicions about Universal Health Care, the nearly insolvent St. Petersburg Medicare insurer the state now accuses of fraud, forgery, embezzlement and other illegal financial conduct.
In fact, ever since the first time the company was on the brink of insolvency in 2007 — before its CEO A.K. Desai arranged an emergency infusion of funds — Universal was under heightened scrutiny.
Typically, the Florida Office of Insurance Regulation subjects companies to a formal exam every five years. "This one we were involved with a lot more frequently," says Belinda Miller, the state agency's general counsel. "We've looked at this company pretty closely over the years."
Regulators worried the company was growing too quickly. It had a revolving door of chief financial officers — five within six years — and has been hammered by poor quality ratings the past three years from federal Medicare overseers. In a lawsuit a year ago, a former vice president of Universal accused the company of various accounting irregularities.
Despite those simmering suspicions and accusations, the state didn't launch a formal investigation into the company until Aug. 24, 2012. The trigger: a qualified audit opinion from Ernst & Young that refused to sign off on certain Universal financial statements for 2011 citing a "material weakness" in the company's internal controls.
Miller defended the time it took to both start and complete the probe.
"It's one thing to know a company has issues. It's another thing entirely to prove a company is insolvent, and we had to have proof," she said.
The proof they now have, investigators say, points to a broad pattern of financial mismanagement under Desai's leadership. The company allegedly overstated its assets and misled both regulators and its primary lender, BankUnited.
Under regulatory guidelines, an HMO becomes a candidate to be taken over by the state if it has been the victim of "embezzlement, wrongful sequestration, conversion, diversion or encumbering of its assets; forgery or fraud or other illegal conduct" threatening its solvency. Asked which violations applied in this case, Miller said all of them do.
Florida Chief Financial Officer Jeff Atwater is moving to liquidate the insurer, which has been deemed "virtually insolvent," while Insurance Commissioner Kevin McCarty's office discusses potential civil or criminal action with state and federal law enforcement agencies.
State regulators say they don't plan to take any other actions until if and when a circuit court judge appoints Atwater's office as receiver and the company is found insolvent. A hearing is expected within a couple of weeks.
As the Times previously reported, state documents indicate that the company was, by its own admission, insolvent by $12.6 million as of Dec. 31 and would require $30 million to keep going.
State regulators in Ohio and Georgia took action against Universal late last year, reaching consent agreements in which the company agreed not to enroll new Medicare members.
Florida didn't follow suit, Miller said, because it wanted to focus on the bigger issue of proving the insurer was insolvent. Besides, she said, reaching a consent agreement with the company to stop writing policies didn't work the last time.
In 2007, Universal accused the state in court of coercing it to sign a consent agreement, Miller said. During prolonged legal proceedings, Desai was able to bolster Universal's finances before it could be declared insolvent.
The state approved Universal to resume selling coverage in February 2008, and it quickly expanded to 20 states.
"We didn't have the evidence (of financial misdeeds) then that we have now," Miller said. "We (only) had financial statements that indicated an impairment or insolvency."
To fend off creditors and buy time to potentially sell the company, Universal's parent company, which also is controlled by Desai, filed for Chapter 11 bankruptcy reorganization earlier this week.
Dealing with Universal's woes has had other impacts on Desai, who is well-known as a major donor and fundraiser for the Republican Party. This week, he resigned his position as state finance chairman for the Republican Party as well as his seat on the Florida Board of Education.
In email responses to questions from the Times, Desai said he had to review the state findings before commenting.
Separately, he said he was assuring workers the company would persist. At last count, Universal employed nearly 1,000 people at its downtown St. Petersburg headquarters.
"Of course employees are worried, but I conveyed the message to all our employees that continue to focus on taking care of our members and their needs and keeping 'business as usual,' " Desai wrote. "We need to persevere and continue to march on. That is resonating well in this difficult time for the company. We have loyal customers and employees and I am confident that we will be able put this difficult time behind us."
Jeff Harrington can be reached at firstname.lastname@example.org or (727) 893-8242.